Thursday, December 5, 2013

AT&T announced a no-contract option (known as Mobile Share Value) for both consumers and business customers that provides customers with plan and device discounts. New plans go in effect on Sunday, December 8. The announcement does not provide any service plan details though the carrier has stated that every smartphone added will be a flat $25/month instead of the sliding scale depending on data tier (ranging from $30-$50) on a contract offer. Also, featurephones/quick messaging devices (QMD) are now $20/month instead of $30/month. All other add-on pricing for tablets, internet devices, wireless home phones, and gaming devices remain the same.

AT&T is adding a new Next plan 18 month upgrade option coupled with the ability to spread payments over 26 months.

ANALYSISTAKEAWAY: IT'S NOT ONLY ABOUT T-MOBILE BUT ALSO HITS VERIZON WIRELESSThe easiest conclusion when viewing this announcement is that AT&T is responding to T-Mobile's success of the Simple Choice no-contract plans. As T-Mobile has been very public about targeting AT&T customers, it makes sense. Yet when pricing is extracted, the results reveal interesting moves.Back to the analysis - though the announcement lacks service pricing details, BGR.com seems to have an advance look and crafted a value chart (below) running one and two smartphone scenarios.

Graphic/table via BGR.com article. Not surprisingly, the gist of BGR's findings is that there are indeed savings. The most surprising discovery of the BGR chart (assuming the prices are correct) is that Contract customers also receive some savings relief, noted in the third column as New Price (Subsidized). This is made possible by leaks in other media that the contract smartphone device add-on is now a flat $40/month. With this as a guide, the new Value service pricing can be broken out. While there seems to be an increase at the 1 and 2 GB levels, there is some logic (explained in the Verizon Wireless impact below).

Existing AT&T business/enterprise & heavy users electing for >10GB will see the most service price savings if they make the switch. WHAT'S IN IT FOR AT&T?

Though AT&T scoffs at following T-Mobile's no-contract reduced service pricing lead, the disruptive competitor has shown that the marketplace likes it. The fact that T-Mobile's last two quarters had formidable postpaid net additions helped push the AT&T decision to offer a Value plan. AT&T had to counter with something while preserving its premium brand.

The new Mobile Share Value plans give AT&T more pricing levers. The holidays are coming up and industry insiders know that the bulk of the service providers' transactions are in Q4 and Q1. AT&T cannot allow T-Mobile (and nemesis Verizon Wireless) go into the holiday selling season with any sort of momentum.

The new Value pricing helps the fight at the important high tier plans. This is particularly important given the target segments are heavy consumer data users and enterprise accounts, which Sprint and Verizon Wireless also covet. Moreover, these are high-value (ARPU bearing) customers that AT&T cannot afford to voluntarily churn out.

Smartphones are where the customer and revenue growth is in the near term. By discarding the smartphone device sliding scale pricing simplifies a sales reps' ability to close a transaction. By offering a flat $40/month contract and $25/month no-contract add-on pricing, things are 'not complicated.'

AT&T allows its contract customers to move to the new Value plans right away with fees or penalty. Contract customers will just have to remain with the carrier for the number of billing cycles they have remaining. However, they also benefit from the reduced pricing right away. While risky, this ability offsets churn, especially for those customers who don't want/need to upgrade to the latest devices at contract end.

WHICH COMPANIES WILL FEEL THE MOST IMPACT?

T-Mobile may not get as many AT&T switchers as in previous quarters given AT&T's new No-Contract plan option. Though dismissed as expensive, AT&T's new 26 month payment extension helps to drop the per monthly device financing cost. In business accounts, T-Mobile can no longer tout that it is the only carrier with no-contract reduced service pricing.

Verizon Wireless - In the 2 year contract world, Verizon Wireless now sees greater competition. At the low end AT&T still appears to be ahead at the 1 and 2 GB levels despite the price increase. How AT&T wins at these tiers is the new $40/mo smartphone pricing that matches Verizon Wireless'. In the old contract plan, smartphone add-ons were $45/month. In a single smartphone scenario, the 1 and 2 GB options would be $85 and $95. In the new contract plan, the same result occurs and still bests Verizon Wireless' $90 and $100. Why do it then? In order to get to a flat $40 smartphone add-on price, pricing planners needed to increase service pricing specifically at these tiers. AT&T's new 8 GB tier now allows provides price parity at the 4 GB to 10 GB range.

With the above chart it is abundantly clear that AT&T was fixing non-competitive pricing against Verizon Wireless at the 6 GB to 50 GB range. Now it is at price parity in the bread and butter 2 year contract battle. Additionally, with a No-Contract option, Verizon Wireless is vulnerable for those high-value customers who want to shift over to a lesser no-contract option but won't consider T-Mobile.

Sprint is likely to be impacted in business accounts where it is competing heavily against AT&T and Verizon Wireless. It can't be too soon to have its Spark program rolled out to present a service differentiation.

COMPETITIVE RESPONSE?

T-Mobile doesn't have any more pricing levers as its Simple Choice plans are fairly aggressive. Its ARPU metrics have been on the decline already and it has said that ARPU will stabilize along with churn. Along with this stability is the margin that also comes without playing the device subsidy game. Marketing and PR positioning will likely be the most logical step, marrying the value playbook with undercurrents of bolstered speed and its growing national LTE network footprint. Of course there will be the campaigns that says AT&T is copying T-Mobile.

T-Mobile and Sprint's family plans are not shared data plans which has its own competitive merits. T-Mobile and Sprint positions the ability to assign a lesser or more data amount per user. Moreover, Sprint's unlimited proposition and lower price points still stand out compared to larger competitors Verizon Wireless and AT&T.

Given AT&T's move into the No-Contract game, Verizon Wireless is forced to go on the same path. AT&T's no-contract $25/month smartphone add-on is fairly aggressive; Verizon Wireless would unlikely undercut this as it doesn't want to stimulate a price war. A logical and conservative scenario is to roll out a matching no-contract plan. In all likelihood, Verizon Wireless may add its own twist.